Google Challenger Perplexity Promises Booming Growth, Rosy Margins
The Takeaway
• Search engine expects annualized revenue to hit $656 million by end-2026
• Perplexity is in talks to raise money at a $9 billion valuation
• Valuation is a steep multiple to forward revenue
Google Search challenger Perplexity AI recently projected it will more than double its annualized revenue in 2025 to $127 million, implying it would be generating $10.5 million per month, according to three people who have seen the projections. Perplexity also projected it would quintuple annualized revenue to $656 million by the end of the following year as it tries to lure millions of people to pay for its search service, one of those people said.
The startup, which operates an artificial intelligence–powered search and chatbot service, disclosed the projections as part of a pitch to investors as it tries to raise $500 million in a deal led by venture capital firm IVP at a $9 billion valuation. It previously raised more than $400 million from IVP and other firms.
Founded in 2022, Perplexity has been one of the breakout startups of the conversational AI boom, at least when it comes to notoriety in Silicon Valley—and fundraising. Its pending valuation of more than 160 times its forward revenue, which comes primarily from subscriptions to a premium version of its consumer service, is much higher than those of other AI startups, though most of the startups sell services to businesses rather than consumers.
Investors are betting on an outsized return from Perplexity as consumers increasingly use chatbots, including OpenAI’s ChatGPT, to look for information instead of using Google. Perplexity has relied on AI providers such as OpenAI and Anthropic to power its search service, though OpenAI also has launched a Perplexity-like search service for its 11 million paying ChatGPT subscribers.
Perplexity also relies in part on technology from Brave, which has developed its own AI search service and web browser, and has used website ranking signals from Google Search. Perplexity has won plaudits for the way it presents concise answers and real-time information on everything from the latest cooking trends on TikTok to weather reports.
Its rising popularity has gotten the attention of numerous Silicon Valley firms. CEO Aravind Srinivas told executive team members last year that X, Notion, OpenAI and Microsoft had all expressed interest in acquiring Perplexity.
Perplexity plans to end this year with 240,000 subscribers to its premium service, according to one of the prospective investors. But it isn’t clear how many of the subscribers are paying for the service, which typically costs $20 per month. The company projected it would have 550,000 subscribers in 2025 and 2.9 million subscribers in 2026, this investor said. Perplexity says companies including Stripe and Zoom have signed up for enterprise plans, costing $40 per month per person, for their employees.
Lately, though, Perplexity has been preparing to sell advertising space in its search results, and it recently started adding links in results to help its users quickly buy the products they’re searching for. The company said last month it wasn’t generating revenue from the feature, but it could theoretically generate affiliate link or referral revenue. The revenue projections Perplexity showed to investors didn’t appear to include such advertising or commerce-related revenue.
A spokesperson for Perplexity did not respond to requests for comment.
During the recent fundraising, Perplexity said its gross profit margin, or revenue after the cost of goods sold—including cloud fees, customer service and payment processing—would be around 75% by the end of the year, up from roughly 30% in January, said the person who saw the figures. Perplexity expects to eventually increase its gross margin to 85% after 2026.
Perplexity recently projected it would spend between $15 million and $20 million to use OpenAI’s conversational AI between October 2024 and October 2025, but it isn’t clear whether that is included in Perplexity’s COGS or is part of its research and development costs, typically not included in gross margin calculations.
Perplexity’s projected gross margins are far higher than those of the major AI developers upon which its search service relies. OpenAI, for instance, projected a 41% gross margin this year, possibly because of the high costs of running the free version of ChatGPT, which has more than 300 million weekly users. (However, OpenAI is growing faster than Perplexity despite being 80 times bigger in terms of revenue.)
Perplexity in July announced a new cost for its business: It shares a flat, double-digit percentage of revenue with a news publisher every time a search result references the publisher’s content. The startup has struck deals with publishers including Time and Fortune. It is also facing a copyright infringement lawsuit filed by News Corp and a legal threat from The New York Times Co. over its use of their content in results.